I'm a co-founder of NorthBridge Energy Partners, LLC., a consulting firm that helps companies connect assets to power grids. I'm also a former Senior VP of Energy Technology Services for Constellation NewEnergy, Inc., and have 20+ years of experience in the energy industry. I've written for the Boston Business Journal, Mass High Tech and several other online industry publications. I have a B.A. from Williams College and a Masters from Tufts University’s Fletcher School.

The Economist: Innovation Almost Dead. Perhaps Not So In Electricity

Instead, for every customer who wants real-time usage information, a truck roll and on-site coordination with the incumbent utility is required, costing thousands of dollars per transaction. Despite obvious enormous advantages to customers, evolutionary gains in productivity are hard to achieve at scale with such barriers (disclosure: the author was part of the team that initially brought Virtuwatt to market).

And yet, despite such limitations, innovative change is gaining speed all around the perimeter. New technology is coming from outside the industry – aided by some regulatory changes and government incentives – and is massing to force change in the ratepayer utility industry. This innovation is occurring in numerous customer – focused production, storage, and end-use technologies. In fact, 798 cleantech patents were granted in Q3 of 2012, 25% more than in the prior year. The majority of these ideas will never be commercialized. Many will represent only minor tweaks, rather than major change, but a few may emerge to become meaningful technologies. Natural gas-fueled micro-cogeneration and fuel cells are just starting to proliferate. On-site solar is now real – after 20 years of promise. Battery technology is advancing and several promising variants appear to be on the horizon of commerciality. Electric cars in the millions are now projected within a few years.

Things are changing rapidly enough so that California can legitimately expect to realize its plan of supplying 33% of its electricity with clean energy by 2020 – a goal that would have been laughable ten or fifteen years ago. The state has already surpassed the 20% mark (granted, much of this is still utility scale renewable investment, but increasingly more is happening at the consumer level). The constraints enumerated above can still impede – but ultimately cannot – stop the innovation and deployment of new energy technologies. The vast infusion of IT and communications technology will accelerate the process.

Unlike other areas identified by the Economist, where technological process has indeed slowed, and economic growth has gone along with it, there may be tremendous potential remaining in the electric energy industry precisely because it has remained relatively bottled up and stagnant for most of the last 100 years. The game-changing technology has not developed from within the industry, but outside of it, and is now moving into the industry, largely ignoring the utilities – with a focus largely on the customer.

The transition may happen even faster if the utilities and regulatory entities continue to let the grid fall apart, and continue to let depreciation exceed new investment – as it has for for much of the past two decades. On an average day, 500,000 Americans suffer some sort of power outage. It is precisely that lack of power quality and reliability that will force some customers to search for better and more reliable behind-the-meter solutions. And the high cost of remedying the problem will result in higher rates, providing an even more competitive environment for new technologies.

So – in contrast to the past lost decades – we can expect to see a good deal of new innovation and on-the-ground technology deployment in the electricity realm. Look for technology deployment to continue in the ‘progressive markets’ where regulatory and legal frameworks allow or promote it. Expect to see initial maturities in outlier markets with high prices (e.g., islands with extremely high generating cost, such as Hawaii) or end-uses with specialized requirements (remember when solar was the province of highway signs and offshore buoys). And watch for technologies to migrate more broadly to larger areas as they hit scale.

Taken to an extreme, this dynamic is such in Hawaii that the utility recently commented that customer self-generation and what it calls ‘cascading natural deregulation” could render its current business obsolete. That kind of change is precisely the revolutionary innovation and technology the Economist was talking about. It is largely coming about despite –rather than because of – the utilities. Watch for it. It’s not going away.

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Pundits have long gazed into the future with closed eyes predicting declines that never materialize (http://www.inventionmysteries.com/article4.html). The pace of technological innovation continues to accelerate. It’s the shape of invention that changes. In the past, inventions had a physical component, today it’s intellectual (look, shape, algorithmic, concept, etc.) The best is yet to come as we get better at using what we have and information will be key to making it happen.

Unfortunately, to-date, Energy Innovaiton at the public utilities has been a bit of a two-edged sword, primarily driven by the perception of the industry about what customers are willing to take, as well as what they are willing to pay for. If you ask energy consumers about making innovation investments, most will say “just lower my bill, I will take that instead of your innovation.” With energy companies internal mantra of lay low and don’t stir up controversy – internal business decisions are predictable as a result of this attitude. Innovation is a gamble, it comes at a cost, and we see the trail of innovation littered with the bodies of pioneers. Utilities are inherently risk averse. That being said, there is little excuse for Utility companies to not take the lead in innovation in the area of energy use and behavior management.. Our recent research shows that the majority of American electric utility customers say their utility fails to provide them with sufficient tools to manage their energy use; that in spite of increased spending for DSM and demand programs. Smart meter deployment, to-date, has been a utility-focused initiative with low engagement, or no engagement tools, systems and processes set in place for end users to take advantage of. This is the industries’ bridge to nowhere as far as consumers are concerned. With this lack of a next-step developed and planning, utilities risk the possibility of never getting the level of engagement they need to make their investment optimized. We have contended for a period of time that third-party developers are shaping the conversation in energy innovation and the utilities are going to find themselves way behind the curve, being dictated to about future direction instead of being a respected partner in the process.

Jules – Your insights strike me as spot on. The whole ‘smart meter’ thing jumped out of the box too quickly – driven by stimulus money, before it could be honed by experience and mistakes into what the market wanted. The utilities missed the opportunity to engage their customer, and kind of did get that bridge to nowhere. I was at a conference where one exec stated his utility didn’t know: a) who owned the data b) what to do with it c) what usage intervals to keep (5- minute? 15-minute? hourly?) d) how long to keep it The cart was so far ahead of the horse, it hit the poor beast from behind!

It is true that utilities operating as monopolies with regulatory mandates have slowed in innovation. The state of networks and customer service applications are too far behind other industries (compare with telecom and retail). However, recently we are seeing encouraging spate of innovation for consumer energy usage. This is driven by regulatory mandate, as well as emerging technology trend of Consumerization. Even now, innovations and capital investment in rolling out their applications is miniscule for generation and transmission side of business.

The regulatory mandate is interesting in that it OPENS up the customer to innovation from the outside, but doesn’t generally encourage the utility to do the innovating – not that they’d be likely to. I once saw a utility/supplier where the CEO essentially stated he wanted innovation to drive 5-10 of new growth. First thing they did was set up an innovation committee. huh? That’s not quite how new ideas evolve or get adopted. Never has been.

As an electiricty consumer I don’t want to be involved in a “daily energy usage” conversation with my provider. I just want to flick a switch and the light comes on. Why do we always have to make everything in modern life ever more complex?

John – you probably won’t have to be involved in that daily conversation if you don’t want to. But that conversation involves making things more efficiency, so if you opt out, you will likely end up paying more.

I thought that The Economist missed an area that really needs innovation — government. The huge influence of money all comes in on the side of incumbents.. I wish the President had used his visit to the Chamber of Commerce a few years ago to ask for a revised tax code that would favor innovators. Edward Luce of the FT in his book “Time to Start Thinking” quotes a Washington insider that the fossil fuel industry owns Washington. Another area I think The Economist missed is big data and health care which I have written about several times on Forbes. Just showing which procedures are a waste of time is one big step but it can do a lot more in showing what works and in what ways. Will this innovation worry look like “The world will never need more than five computers” sort of predictions?

Tom – totally agree with big health care and data. I think their point that the lag time between innovation and deployment is particularly true in this area. And your point on gov’t. dong more to foster innovation is well-taken. Incumbents always have more influence – they have something to lose. That’s how stagnation occurs at national level. At the corporate level, that’s where Schumpeter comes in: “Every piece of business strategy acquires its true significance only against the background of that process and within the situation created by it. It must be seen in its role in the perennial gale of creative destruction;”

“The smart grid part of the industry really hasn’t yet gotten all that smart. But the technology distinction only explains part of the innovation/technology lag. The main factor in the slow rate of change probably has had to do with the structure and culture of the electric industry.”

“Amin is fond of commenting in his frequent presentations on the topic of grid inadequacy that the even pet food industry invests more in R&D.”

Personally, the preceding two excerpts from this excellent piece immediately make me think that the pervasive nature of utility is to remain 20th century based. The perpetuation of innovation stagnation… is currently being played out in Atlantic Canada with the emerging utility Emera mega project Muskrat Falls. The silo being created shuts out and down making the grid smarter in favor of green generation from 1600 kilometers from my city Halifax and involves to ocean cable crossings and a third cable into the NE of the United States. It will mitigate coal fired generation yet that is still the reality here in Nova Scotia…like California we via gov’t initiative will have 20% sourced green energy from Solar, Tidal, Wind and Hydro eventually this decade. Regional SMART grid tech needs to be the 21st century thinking approach to facilitate productivity gains, that said I keep hearing but not experiencing the methods and manners of Utilities delivering the consumer economic synergy. FWIW the Internet uses over 10% of all global output of electricity by some estimates and it will serve as the mortar and pestle of innovation for mutual beneficial energy synergy for consumers ….let’s hope this decade For the latest on Emera’s Muskrat Falls see http://thechronicleherald.ca/canada/550599-blogger-mounts-costly-muskrat-falls-fight or enter Muskrat Falls into any search engine

im pretty familiar with that centralized dynamic, having been involved as a consultant to the Cree Indians 20 years ago in their fight against Hydro-Quebec’s Great Whale project. One good thing about large hydro: it represents massive (in some cases inter-annual) storage. Properly utilized, it can facilitate the integration of significant amounts of intermittent renewables.